>> but who is responsible? >> pressure to get the jobs done-- that's the reason people are dying. >> frontline and propublica investigate "cell tower deaths." >> people don't understand what the danger is to a tower climber. >> and coming up later... >> corzine was a dynamic character-- from the military to goldman sachs to governor. >> frontline's "money, power and wall street" series continues with jon corzine's mf global disaster. >> jon corzine was betting on a bailout. he was betting that the relatively risky parts of europe would become less risky. he basically made a goldman-sized bet at a firm that was only a sliver of goldman's size. >> the firm's stock is getting crushed yet again this morning, and mf's credit rating was cut to junk by moody's overnight. >> how can something like this be allowed to happen? how can n e individu completely shape the destiny of this firm and ultimately its demise? >> these two stories on this special ededion ontline.

>> frontline is made possible by contributions to your pbs station from viewers like you. thank you. and by the corporation for public broadcasting. major funding is provided by the john d. and catherine t. macarthur foundation, committed to building a more just, verdant, and peaceful world. and by reva and david logan, committed to investigative journalism as the guardian of the public interest. additional funding is provided by the park foundation, dedicated to heightening public awareness of critical issues. and by tfrontline journalism fund, supporting investigative reporting and enterprprprprprpp

>> martin smith: it's one of america's most dangerous jobs. >> people have no idea what we go through on a day-to-day basis to give them that service when they're holding their cell phone. >> smith: tower climbers install and service cell phone antennas, ascending hundreds-- sometimes more than a thousand-- feet. >> people don't understand what the danger is to tower climbing. one person drops a wrench and it'll kill somebody. >>yeah, 1,500 feet. look at that view! we get paid for this. we get paid for this. >> 1,500 feet. >> smith: the job attracts a certain kind of worker. >> this is awesome.

>> smith: someone like jay guilford. >> he was young, he was cocky. he was never scared of nothing. >> 911 emergency. >> yes, we're working on a tower site. we just had a man fall from a 200-foot tower. we need an ambulance. >> okay, i'll get them down there. >> it was not even a year, jay ain't even been in it a year when the accident happened. >> smith: guilford's death wasn't an isolated case. over the last decade other men have been falling to their deaths. north carolina. arizona. kentucky. florida. iowa. since 2003, there have been nearly 100 climbers killed on radio, tv and cell towers, a rate that is about ten times the average for construction workers. >> jay guilford, actually, this is what he was using...

>> smith: to find out why, reporters at frontline and propublica investigated the 50 cell related deaths. but did they address the question of responsibility for... after pouring over thousands of documents, we discovered a complex web of subcontracting that has allowed the major carriers to avoid scrutiny when accidents happen. >> any of your cell phone carriers, as far as their concern, safety is our issue, not theirs. >> smith: ray hull is a tower climbing veteran. before cell phones, he worked mostly on tv and radio towers. >> any major tower company knew who i was, knew who my dad was, my granddad. i'm third generation in that line of work. >> smith: but with the boom in cell phones, the industry suddenly changed. >> there was a big push for these cell companies to start expanding out and covering the

dead areas, everybody trying to outdo everybody. >> 15, 20 years ago, a good tower company might... might build four towers a year. now timelines are radically different. so instead of contracts to build a tower, you have contracts to build 40 towers. >> smith: the increased pressure almost killed hull. >> it was a cell phone tower for nextel. >> smith: hull was hired by the subcontractor and given a strict deadline. >> the only problem with that is the equipment was in texas, and we're in fremont, nebraska, about 20 hours away. >> smith: he was worried the drive would make him miss the deadline, so hull called the subcontractor. >> they said we can't change the deadline. this is nextel's deadline. the tower has to be up and completed. >> we left nebraska and it was nonstop. werove straight through,

loaded the equipment, got back in the truck, and drove nonstop. >> smith: he planned to sleep back in nebraska, but then he arrived at work site. >> when we got back there was a nextel vehicle on site. >> i assumed that he was there to rattle our cage, get us to go faster. >> smith: hull didn't know it was just a technician. he felt pressured and immediately ascended the tower. we obtained the government investigation video and showed it to hull for the first time. >> i'm just amazed that i'm even here. i remembering hearing a loud noise. >> smith: a huge piece of steel broke lose. >> my head was jammed into the piece of steel and knocked me out. >> smith: hull fell 240 feet, but his life was spared after his safety harness broke the fall.

>> the operator pulled the wrong lever. frankie was with me on the trip from nebraska to texas and back. >> neither one of us was rested. and we have the end result that we do today. >> smith: hull suffered severe internal injuries and is now permanently disabled. >> it was a bad day. or a good day, whichever way you want to look at it. i walked away from it. >> smith: so a lot of time pressure. you saw that often in your work? >> all the time. >> smith: all the time? >> we saw it all the time. >> smith: veteran climbers like wally reardon say that time pressure often leads to something called free climbing. >> free climbing's any time when a person's climbing on a tower where you're not connected to a fall arrest system. >> smith: a catch, basically. you're attached to the tower. >> right.

he's just thinking about the shortest route there. >> smith: reardon climbed towers for ten years. now, he drives around and takes pictures of free climbing to try to draw attention to the dangerous practice, which regulations strictly prohibit. >> he's not tied off. >> smith: free climbing was involved in about half of the fatalities we examined. >> smith: so what am i looking at here, wally? >> we're looking at the guy coming down, he's disconnected right now and as you can see his fall arrest... >> smith: so he's totally free climbing? >> see how fast he's coming down? >> smith: so he trips, misses one step, he's a dead man. >> yeah, absolutely that's pretty much the way we did it. standard operating procedure. >> smith: so this was no secret that everybody was free climbing and you could get your work done quicker? >> right. >> smith: and the contractor that was your employer was happy to have it that way. >> sure. and even the safest people i've worked with in the industry eventually will cave to it. >> smith: free climbing was apparently common for the crew that michael sulfridge worked with.

he was a high school dropout still living at home in rural tennessee. >> he wanted to be a cop. but i talked him out of that because i thought that was a dangerous job. i was afraid he'd got shot or something. >> smith: when he got a job tower climbing, his parents weren't happy about that either. >> and we tried to make him quit, but he wouldn't. "i'll be okay, mom," big smile on his face, you know. "don't worry, mom. i'll be okay." >> smith: his mother's fears came true. he was free climbing near the top of this tower in kentucky and lost his balance. >> whenever he lost his balance and fell from the tower, he landed somewhere in this area here on the ground, and in this spiral wire up above was one of his tennis shoes and a work belt. >> smith: randy gray was the investigator for osha, the government agency that regulates

workplace safety. >> sometimes i still can't imagine what that boy was thinking whenever he fell off that tower, that very last few seconds. >> smith: gray quickly discovered that free climbing was so accepted that the crew didn't even bother to take safety lanyards with them up on the tower. >> the lanyards were all in the back of the supervisor's truck. some of them were even in new packaging, never opened up.confd that's just the way they normally did things. >> smith: tower services incorporated, sulfridge's employer, declined our interview requests. gray issued the company citations that carried a fine of $143,000. eventually it settled with osha for $24,000. we wanted to ask osha about additional responsibility beyond the contractor. if the carrier is controlling the schedule, putting pressusu on the general contractor, who in turn puts pressure on the subcontractor... >> we've had a number of

situations where we think that accidents were caused by companies trying to meet deadlines and not... and cutting corners on safety in order to meet those deadlines. >> smith: jordan barab is the number two at osha. although osha routinely fines subcontractors after accidents, it's more difficult to go after the carriers who hire them. to do so, it must first prove the carrier is controlling the work and has knowledge of the violation. >> our problem in this industry is that you have these little contractors that may set off in their pickup truck, you know, driving miles across the countryside and may never have any contact-- face-to-face contact-- with their contractors. >> smith: but the work that they're doing is controlled in a very real sense by the carrier at the top of the chain. >> it's very restrictive in terms of the legal requirements. generally it's only useful when you actually have somebody at the site that actually is

witnessing and has some control over the actual working conditions at the site. >> you can see the tower over here to the left. >> smith: randy gray concluded that bluegrass cellular, the carrier in the sulfridge case, regularly visited the company's tower sites, so he issued citations. >> it just seems logical that whenever the carrier was here, that they had the possibility to know that these people were not tying off with personal protective equipment, just like anyone else would've. >> smith: but bluegrass fought back, saying, "bluegrass does not have a duty to oversee the safety of independent contractor employees working at its cellular sites." gray couldn't show that bluegrass, which also declined our interview request, was on site and watching the day sulfridge fell. >> there was no way to prove that the carrier knew that they were up there, not tied off, and there's no way to prove, to know that the carrier had been on the job site that day or the day

before. >> smith: after a nearly three-year legal battle, bluegrass won and all osha citations were dropped. we discovered that the bluegrass case was the only time since 2003 that osha even attempted to cite a carrier after the death of a subcontractor. what does this say to you that there've been no citations by osha against any carriers? >> it says to me that we don't have the legal ability to do that. legally there's no way we can really get to that company. the company that may, again, several levels up, that may actually own the tower. >> it is difficult because they've got that layer. >> smith: so the multi-layers protect them from liability? >> yeah, just through their own policy they layer themselves away from it. >> smith: mm-hmm. it protects them from getting an osha citation? >> yes. >> smith: in the middle of the last decade, the major carriers were gearing up for the next generation of cell phones. this push was all about data, a

new standard called 3g. at&t had merged with cingular, to form the largest cell company at the time. >> we had this huge slug of work that was occurring in '05 and '06. >> smith: ed reynolds is the former president of network services at at&t. before retiring in 2007, he was charged with combining two distinct networks into one. >> it would be like taking a 747 with all of its engines and while it's in flight at 35,000 feet you're going to change all four engines into one huge engine and not lose a foot of altitude. >> smith: but that was only the beginning. >> it took three years, billions of dollars... >> and then the iphone hit. and we knew that it was going to be a success. we were confident it would be a success. but it was a game changer, if you will. >> well, as you can see, we're on fifth avenue in front of the big apple store. >> smith: the success meant that data usage far exceeded

what at&t had predicted. >> here is the giant throng. >> smith: its network wasn't ready. >> at&t knew that it was in trouble and that it had to get very aggressive on expanding their network footprint, especially around capacity. >> smith: by 2008, at&t was pouring billions of dollars into tower upgrades. and for phoenix of tennessee, an at&t subcontractor, that meant one thing. >> work. lots of work. >> smith: but to get that work, phoenix had to go through a middle man. >> we don't deal direct with at&t. we do work for the vendors, the turf vendors. >> smith: turf vendors are large firms, like general dynamics or bechtel, that at&t relies on to manage work on thousands of tower sites across the country. the turf vendors in turn subcontract to companies like phoenix. and in 2008, phoenix also sent

much of its work to a smaller affiliate, a company called all around towers. >> i would make the phone calls, open the door. once i got them in, they pretty much took it from there. >> and then all around towers hired their own crew members, their own people. it didn't matter if they had experience or not. >> smith: like jay guilford. he kicked around between part-time jobs. he was a mover, he delivered pizzas. but after his second child was born, he needed something better. all around towers was offering a full-time job at $10 an hour. >> that's when he filled out the application, came back out, said he had a job and they gave him a $600 check and had a plane ticket for him to leave, like, the next day. >> smith: guilford, with no prior experience, was suddenly thrown into one of the biggest building projects the tower

industry had ever seen. >> even in the wintertime there was ice on the towers and he would tell me he would have to literally beat ice off of the pegs to climb up the towers, which i did not find that very safe. >> smith: but his cousin and co-worker says guilford wasn't scared. >> he enjoyed it. i mean it was.. it give him a rush that was unreal. jay, i mean, he just... he loved the job. >> smith: it was may 2008 in a rural corner of indiana. >> we just had a man fall from a 200-foot tower. we need an ambulance. >> i've got units in route down there. >> jay's dad called me and that's when he told me he had fallen off a tower. i freaked out and screamed

and... just screamed and screamed. >> smith: guilford fell when he was rappelling down the tower using the wrong kind of rope without a safety line. one witness said he was horsing around, his co-workers on the ground cheering him on. his rope was attached to a broken hook that popped off the tower. and, it turns out, an autopsy showed that he had recently smoked marijuana. >> do i feel responsible to a degree? i think everybody does that was involved with it. i think all of the... i think the turf vendor does, i think everybody does anytime somebody dies. i was not the guy who put the man in... the crew leader in charge. >> smith: waites puts most of the blame on guilford for breaking safety rules and on all around towers for the broken equipment and lack of supervision.

>> once you leave men alone, the men have to police themselves. the man in charge has to be the sergeant. we can't hold the hands of everybody 100% of the time. it's impossible. >> if that equipment is checked when it comes off that truck or trailer, this should have never happened. when you're allowed to do something that is strictly unsafe, then something's wrong up the line somewhere. >> smith: osha cited phoenix of tennessee, the parent company of all around towers, for the broken equipment. the fine was $2,500. the case was closed. but osha missed the bigger picture. our investigation found that 11 climbers working on at&t projects died as

the company built out its network between 2006 and 2008. that's more than all the other major carriers combined. at&t took notice. >> at&t made everybody have a stand down, discuss the deaths, why it happened, what will happen to you if you get caught free climbing. and they required that of every single turf vendor nationwide, didn't matter who you were, where you were at. you had a stand down. >> smith: so they said, "let's have a stand down, let's stop work and figure out what the truth is." what did they figure out? >> i don't know if they figured out anything, quite frankly. >> smith: craig lekutis is an industry watchdog and safety advocate. >> i think what they did, it was, "hey, we've got to pay more attention to safety" because most of those accidents, i believe, during that period of time, were accidents that were caused by the worker not tying off 100%.

>> smith: it sounds like a pretty flimsy resolution. >> it is. it didn't have the impact if carriers would have said, "hey, we're stopping all work. we're going to figure out and we're going to solve this problem." i think a lot of times it's more lip service than it is a real desire to be concerned about the safety of this industry. >> smith: at&t declined our request for an interview. in a statement, the company wrote that its contracts "require strict compliance with state and federal laws and regulations, including worker safety," and that "worker safety has always been a hallmark of at&t." guilford'siancée, bridget pierce, thinks that no one ultimately took responsibility for guilford's safety. >> nut. >> n-u-t. >> i believe that everybody that is involved should be held accountable. at&t, the contractors, general dynamics and the smaller companies that are subcontracted out.

everybody in this process should be held accountable for and have to pay fines and have regulations that they all have to live up to. >> smith: after guilford died, the foreman for all around towers disappeared and was never questioned by osha. the company quickly went out of business, but two of its owners, who declined interview requests, then started another company that continues to do work in the industry. that doesn't surprise those who study subcontracting. >> the problem of focusing the enforcement attention at the bottom, at the small subcontractor, is a little bit like the old game of whac-a-mole. you can enforce your osha standards on that individual contractor and hit t mole, but there are a lot of other contractors that are going to pop up. if we want to improve conditions in a workplace like

towers, we have to think about the system that generates fatalities. >> smith: in the tower industry, that system is increasingly built around the turf vendor. at&t relies on them almost exclusively. sprint is also starting to. >> turfing does save time and money. in the wireless business, particularly when something like an iphone that drives data usage out the roof, you need to respond quickly. the more of that administrative stuff you have out of the way and go right to work on doing what you need to do-- adding capacity to the network, reconfiguring the network-- turfing's a benefit. >> it's good sense for the... for the carrier to do it. and it's good for the turf vendor because they're making a lot of profit off the projects, but it's not good for the person down... when it gets to the field, where the work's got to be done. >> smith: mark hein has worked for several turf vendors. he says the additional layer of subcontracting means those at the bottom are forced to accept

less money. >> there's a lot of good companies that won't work for them because the money's not there. so rather than paying this amount to this guy, who's really qualified and been in the business, got... has a great reputation, they hire this person over here because he's available right now and he'll do it for what we want him to do it for. >> smith: after starting a new job last year, he was shocked by the subpar crews he found on his first round of inspections. >> when i went out as construction manager, i shut down every project i had working. they didn't have comtrain training, they didn't have rf training, they didn't have their hardhats, they didn't have safety glasses, they didn't have safety gear. >> smith: most surprising to hein, many of these crews weren't even hired or approved by the turf vendor. >> they were working for a sub of the turf vendor. you know, a couple subs down the line. >> smith: but because of the way osha regulates the industry, turf vendors, like carriers, are rarely held responsible after accidents. >> i wouldn't say that the turf vendor doesn't know.

i think the turf vendor just turns a blind eye to it because his contract is with subcontractor b. it's his responsibility. >> by the time we get to the actual person with the tool in their hand we have significantly reduced the financial benefits. and we have put three or four layers of communication problems into the intended final results. >> smith: chris deckrow owns a small climbing company in michigan that typically works at the bottom of a chain of contractors. >> the good companies are going out of business because they can't afford their safety. they can't afford their insurance. they can't afford their workmen's comp. >> smith: deckrow showed us what's left over for him after each contractor, especially the turf vendor, takes a big cut. >> at&t pays the turfer $187 to install a remote radio head.

the turfer then takes the contractor and pays them $93. i've seen seen as low as $40 to $50 and have been paid $40 and $50 to install that same item. >> smith: deckrow says the pricing has forced him to make hard decisions. he drives his trucks more than 100,000 miles a year without changing the tires. and he's cut his safety budget. >> this day and age, everybody's faced with the money versus safety. whether they'll admit it or not, everybody's had to cut back on something. we would love to replace every year, every two years, new harnesses and new safety gear for all our guys. it's not in the budget. but this is stuff they have to wear every day in order to live through the day. my climbing harness, it's got to be around four or five years old. it's older than we allow in the

field, but it's my personal harness. i wouldn't do it with any of my guys. >> smith: deckrow said he is considering closing his company down rather than paying his climbers less or cutting the safety budget even more. >> the carrier sets many of the conditions that ultimately affect injuries and fatalities on that worksite by setting the amount of money that the people who actually do that work are going to be paid for that work and therefore how much they can invest in things like health and safety, and paying high enough wages to attract people who might be competent to do that work. >> smith: for carriers, the responsibility for safety ultimately rests with the contractors. >> you can take the captain of the ship approach and say if there was a fatality, a subcontractor working two levels down under a turf vendor who's working for a network who's working for at&t mobility... i mean, you can say that randall

stephenson is responsible because randall stephenson's the ceo of at&t. but what impact saying that randall stephenson is responsible for that, would have on the eventual safety of future crews, i think that's too far to connect. at what point do you connect? i don't know. >> when osha came to investigate the fatality... >> smith: in the course of our investigation, we obtained this private letter to osha from the subcontractors trade group. in it, they urged osha to go after carriers and turf vendors that hire unqualified contractors, warning that otherwise, "fatalities are going to continue." but three years later, we found out that osha doesn't even track which carriers are connected to fatal accidents. at this point in time you don't collect data on the carriers? >> we don't. >> smith: and is that something that you should be doing? >> it's something we could do. again, it's a lot of work to try to trace things up to the

ultimate owner. but it's ... it would probably not be a bad idea for us to do that. >> smith: is it that much work? don't you just have to ask the subcontractor? >> well, the subcontractor may not know who the ultimate owner is. the subcontractor may know the general contractor that they're working and the general contractor then may know who... and, again, we're talking about sometimes multiple levels here. >> smith: but it's only two or three phone calls and you would know who the carrier was. >> perhaps. >> smith: were you aware before we shared this information with you that at&t had a higher incidence of fatalities? >> i'm not sure but i don't believe so. >> smith: at&t's letter to frontline and propublica pointed out that tower fatalities across the industry have declined since 2008. there were no deaths on at&t jobs last year, even though the carrier said its workload increased. and that workload is going to get even bigger. the competition to build the next generation network-- 4g-- has already begun. >> we have windows competing

with android, competing with blackberry, competing with iphone. and people have high expectations. i think we're on the cusp of a pretty massive build out across all of the major networks, in particular sprint, verizon and at&t, to deliver these much higher speed networks. >> smith: that worries veteran climbers who remember the last big build out. >> we're going to have a bad year as an industry because they're going to go on a big push and your $10-an-hour pizza guys that are now climbing for you because you can't afford otherwise are going to start skipping steps. >> it takes years and years of training to know the safety of your equipment, there's guys out there now that are foremen within months of working, starting a job.

that's ludicrous. >> there's no time to season these employees. there's no time to mature them. there's no time to train them. so we have increasingly less- experienced, less-trained, less- capable individuals doing increasingly large projects at increasing pressure and with decreasing compensation. >> smith: and there will always be more workers like michael sulfridge, who was willing to climb towers for $10 an hour and just happy to have a job. >> these young men are willing to please. what ever the foreman tell them, they're going to do it. it's a money business. it's "get the job done, we're going to get a big check."

>> if we're not properly maintained or trained, then people will die. and it's only a matter of time. >> coming up on this special edition frontline... >> customer money was missing. >> now you have these customers who can't get their money out of mf global. >> the next chapter of frontline's "money, power and wall street" series. >> there's never one cockroach. the system has failed us. >> "six billion dollar bet" begins right now.

>> narrator: this is a story about a bet that went bad. like all stories about wall street, it starts with the pursuit of profits and the risks of getting it wrong. >> pay for at least 50, 12.68 for at least 50. >> narrator: it's one of the latest in a stream of missteps, meltdowns and scandals that blow up, it seems, every few months. >> two mortgage companies under government control... >> the federal reserve is bailing out bear stearns... >> narrator: it's a familiar cycle. customers are outraged. lawmakers promise change. then it happens again. >> mf global, down almost 39%. >> an increasing number of investors are betting the stock has farther to fall. >> of all of the collapses that occurred during this financial crisis, the collapse of mf global, in my mind, is the most

egregious. this did not have to happen. >> it is a wall street morality tale in some ways. how can something like this be allowed to happen? how can one individual completely shape the destiny of this firm and ultimately its demise? >> narrator: this is the story of jon corzine, the collapse of his company, and why no one stopped him until it was too late. >> he is fiercely ambitious and an aggressive risk-taker. and that's the part that never comes across when you talk to him in person. you get this sort of avuncular feeling that totally masks what is a highly aggressive and ambitious guy who takes these huge risks with other people's money. >> narrator: corzine had an impressive résumé-- a high-school quarterback, a marine, and then a rapid rise through the ranks at goldman

sachs. >> corzine, importantly, grew up in the government bond trading business at goldman sachs, where he became such a star and well-respected figure there, he was able to make huge money off of moves in currencies and interest rates and bonds. >> narrator: by age 47, he was the youngest ceo in the company's history. but his management style led to conflicts with another goldmdm partner, hank paulson. in 1999, corzine was ousted. it didn't slow him down. >> hank paulson said to him, you know, "what are you going to do now, jon?" and... and corzine said, "either i'm going to, you know, have my own hedge fund and be worth billions or i'm going to be president of the united states." >> narrator: corzine would aggressively embrace politics. in 2000, he spent a record $62 million of his own money to become a senator from new jersey. in 2006, he spent another $43

million to become governor. >> gracious god, we ask your blessing upon jon, that you would fill him with positive vision, that he might inspire others. >> the reason why we called jon is because we knew he knew about the economy. >> narrator: by 2008, corzine had become a trusted advisor to barack obama. it was once rumored that he might even replace tim geithner as treasury secretary. >> here we go, folks. >> narrator: but then in 2010, new jersey voters ended his political career and returned him to wall street. >> former new jersey governor jon corzine is returning to the private sector. he has taken the helm of mf global. >> narrator: but corzine's choice of mf global was puzzling. >> i think it was a little surprising that he went to such a small firm. you know, if you think about it, goldman partner, goldman ceo, confidante of the president of the united states, former new jersey governor, senator. why wasn't he running a bigger firm, i guess, is the real

question. >> 99% of people would look at his résumé and say, "i was a senior partner at goldman sachs, i was the governor of new jersey, i'm past 60, over and out, i'm going to go have fun." but he looks at his résumé and says, "i was kicked out of goldman sachs. i was kicked out of being the governor. i still have something to prove." >> and he wanted to come back to wall street and prove that his partners had been wrong about getting rid of him at goldman sachs. and he was going to show them. >> i'm really excited about the opportunity to lead mf global. >> i thought it was great. the stock price jumped. and corzine was a dynamic character. >> we're going to work very hard to get the earnings back on track. >> from the military to goldman sachs to governor. i mean, i get it, you know. he's going to have political connections. this is going to be great for the company, you know. so i was sipping the kool-aid at that time. >> narrator: mf global was a well-established commodities brokerage, a spin-off from the

old british powerhouse, man financial. >> it was basically a commodities and futures trading and investing firm. clients would come there saying they want to make trades in the commodities industry or the futures industry-- buy pork bellies, buy oil futures, buy gold futures, silver, you know, palladium, whatever it is. >> mf global was basically the middle man in these transactions. you put in a trade through them. they put it in through the exchange. and they took a small commission for their work. >> narrator: many of mf global's customers were from main street. >> how are you doing? >> narrator: steve meyers used mf global to trade futures on behalf of scores of farmers and ranchers in the midwest. >> adm does most things... >> many people cleared through mf global because they were the world's largest. so it gives you some comfort in the fact that you're always going to have that liquidity,

you're dealing with somebody that's everywhere in the world. >> narrator: but when corzine took over mf global, the firm was in deep trouble. revenue from commissions wasn't covering expenses. the firm was losing money. >> when corzine first came in, the ratings agencies told him, "look, you stepped into a firm that has a lot of problems. so you don't have unlimited time. the ratings on this firm are fairly low for a firm in its business and the bias is to move them lower." and so that put more pressure on corzine than he would have otherwise faced. >> we're transforming from sort of an old-line brokerage firm into an investment bank. >> narrator: corzine set about cutting costs and replacing old-line traders with more aggressive hires from goldman sachs. >> we want to take and intermediate risk, a broker dealer... >> he was going to bring in a new team. he was going to have it take more risk. they weren't taking enough risk, he told me. >> i do believe we can take more principal risk in some of the

businesses that are involved... >> so he was swingin' for the fences from day one. >> and internally generated capital. >> the message was, "we're building an operation that can make a consistent profit, through prop trading, taking bets." >> ...and the proper deployment of your capital into the right places. >> what didn't come across to anyone until later was that corzine himself was the chief trader and that he was making one very outsized bet. >> sovereign debt fears are spreading, and investors are just really worried... >> narrator: it was a large proprietary bet on european government bonds. >> downgrading portugal's credit rating... >> narrator: betting that they were selling cheap and would go up in value. >> if there is some sort of disorderly default, they fear some kind of banking crisis would erupt in europe... >> corzine sees this and says, "this is an opportunity." europe will get this done. they're not going to let various parts of the eurozone default, fall of the edge." >> jon corzine was betting on a bailout.

he was betting that the relatively risky parts of europe uld becomemeess risky,ot more risky. >> the fragile greek government is at a stalemate in the debt crisis... >> jon corzine has always been a gamblin' man. this is what he does. y do scorpns sting? because that's what they do. >> and so he bought billions of dollars worth of these bonds in a way that seemed to hearken back to his days at goldman. he basically made a goldman-sized bet at a firm that was only a sliver of goldman sachs. >> narrator: they were structured as large derivative deals that allowed mf global to book profits immediately in order to right its balance sheet. >> the way that this particular thing was structured, it's a really obscure and complicated transaction, where essentially you can book the profits on the front end. >> when i make an investment, i have to wait to see how it turns out before i can book the profits. but the way these accounting rules worked-- and they were... they were the way it was

supposed to work-- if you booked a trade in that way, you got the revenues right up front. >> ...lines all were up on the quarter... >> narrator: as a result of these proprietary trades, mf global, for the first time in 18 months, began to look healthy. >> smith: were you aware of what the company was doing with the cash on hand that was in the proprietary accounts? >> never. i never knew before that they could invest money in overseas markets or sovereign debt. >> you had no knowledge that they were buying sovereign bonds? >> had i known that, i would have pulled out immediately. >> there was actually a debate internally at mf global about whether to disclose this. and their auditors ultimately encouraged them-- you know, "you guys have to tell people. this is a really sizable bet, and it is material. you need to let customers and shareholders know about this." >> narrator: but they held off informing investors and customers for months. >> as it started to grow, people

began getting increasingly uncomfortable with it. and some people would confront him and say, "you know, jon, i don't think having this much money bet in this particular way is a sound thing. the market could really react badly to it." and so it began to get contentious and a lot of people, including one of the chief risk officers there, said, "look, i can't support this anymore. i don't think this is a good bet." >> narrator: corzine continued his trades. but where was he getting the money? >> i don't think he ever had enough capital to really support the strategy that he was taking. he was taking a lot more risk, much more complex trades, bigger numbers, but it's still the same old firm. and that's the problem. i think customer money was supporting a lot of this activity long before the firm failed. >> narrator: that is speculation. there is no clear evidence that customer money was used in the trades. but corzine was using a financial strategy called internal repo, whereby a brokerage can borrow cash internally from another part of the firm.

in washington, in the summer of 2011, regulators at the commodity futures trading commission, the cftc, were debating whether to ban internal repo transactions. >> the cftc was potentially going to say, "no more doing internal repo." and for a lot of companies, it was an important way to finance certain operational needs. corzine, you know, got wind of this, so he begins to lobby in washington. >> senator corzine was one of the more prominent individuals who came in and told us what a drastic mistake it would be to curtail the use of these internal repurchasing agreements and thatathey were dng everything appropriate with regard to these internal repos, and that we shouldn't worry about them and we shouldn't touch them. >> narrator: corzine visited the cftc and met with commissioners on three different occasions. >> he's an impressive man, and he made a good case, and when he told me that we were making a big mistake, it certainly put some doubt into my mind for a

little bit there as to whether or not we were going down the right course. but certainly somebody that had his stature was somebody who had, you know, added respect, in my view. >> narrator: the regulators backed off. internal repos were not banned. >> when somebody can show up and just wave their hand and say that they're the former governor of new jersey and they worked for goldman sachs, and then show up and start lobbying the agency for even more leniency, i mean, what's the point? we might as well not have the regulator. >> narrator: by mid-2011, with a pass from regulators, corzine's bet on european sovereign debt rose from $1.5 billion to $4 billion to over $6 billion. finally it was all too much. >> the trades stopped happening in the summer of 2011. because eventually they were too big for the board and for the risk officers, and the message was, "enough. leave them at six billion.

you can keep them, but don't build them up any higher than that." >> narrator: with no ability to continue his trades, profits plummeted. the news that mf global could be in trouble hit the wall street journal in the fall. the story was a blow corzine could not withstand. >> when we report that mf global has a $6 billion position in european bonds, it was very concerning to the market and it set off a panic. >> mf global absolutely getting annihilated here. down almost 39%. >> moody's has downgraded mf global... >> huge amount of volatility. the stock is in real trouble right here. >> smith: so this is like a "what was he thinking?" kind of deal. >> i remember having a conversation with someone at mf global when i first heard about the position. and so i said to the person, "are we talking about millions or billions here?" and i'm... i thought it was millions, because i didn't... i had assumed that if it was

that big, it would have been talked about a fair amount. and they said, "no, it's billions." >> i think people saw the magnitude of the bet that corzine made and how leveraged it was on a little sliver of equity and they said, "you know what? when you're leveraged 40 to one, you know, the value of the asset goes down, you know, one or two percent, you've wiped out your equity account." >> ultimately the bet he took was extraordinarily large and was maybe more than an investment bank would take. i meananif you're a goldman sachs and it's a huge institution, it can weather the waves of the market like a big ship. he was in a rowboat doing the same sort of things and it, you know, it just capsized. >> it has been a rough week for mf global. the firm's credit rating was cut to junk... >> customers were frantic. nobody knew anything. you know, my reputation's on the line. right? i've done this for 15 years. stellar record. never any problems. that kind of thing. and now people are going, "well, what's going on?" >> narrator: steve meyers, who

had over $5 million of client money invested at mf global, couldn't get the money out. >> i tried numerous times to phone my rep in chicago... finding out later he had already left the ship. so i knew that we were in trouble at this point, that nobody was going to look out for us. >> mf global is said to be looking to seek a buyer within days... >> narrator: in a last-ditch effort to salvage the company, corzine put mf global up for sale. >> does mf global now need a white knight? >> narrator: it was then that auditors discovered customer money was missing. >> it became clear that there was a big hole-- somewhere between $500 million and $1 billion-- in mf global's customer accounts. >> regulators are now saying that the shortfall is around $593 million... >> at that point, mf global was different than lehman, it was different than aig or any of the

firms that failed. because, at this point, customer money was missing. >> the core rule of this business was this thing known as customer segregation of assets, meaning that the firm kept its money in assets and its customers' money in assets separate. they weren't supposed to get mixed up. well, guess what? they did. >> smith: what we hear from some people close to mf global is that the... we don't know what happened to the customer money because the last days were too chaotic, too much confusion. do you buy that? >> no, in our industry, putting your hands on customer funds takes some deliberate actions. you have to make an active decision to convert those funds. and i think that's what happened. >> smith: how much money is still missing? >> i think it's a little over $1.5 billion. and it's not missing, it's at j.p. morgan. i mean, we know where the money is. >> narrator: j.p. morgan was mf global's banker. investigators are now trying to determine if, in those last desperate days, mf global executives intentionally transferred customer money to

j.p. morgan to meet a margin call from the bank. >> smith: is it legal for them to take the money from the customer account to meet their margin calls? >> no, definitely not. >> smith: i mean, that's different than internal repo. >> it is different from internal repo. and i would argue it's actually an act of fraud. >> smith: an act of fraud. >> yeah, i think it could be prosecuted. >> narrator: corzine says he did not order the transfers. >> please. >> out of the way, folks. >> narrator: but, he insists, he will cooperate with investigators to find out what happened. >> do you solemnly swear that the testimony you are about to give before this committee is the truth, the whole... >> narrator: his only public comments came at congressional hearings last december. >> i remain deeply concerned about the impact that the unreconciled and frozen funds have on mf global's customers. >> this is a big bucketful of cold water in regulators' face. >> i simply do not know where the money is or why the accounts have not been reconciled to date. >> it's a wake-up call that says, "you got to take a fresh

look at what's going on in the markets. you've got to better protect, for customers' interests. you've got to look at these guys, because they're not always going to be straight with you. >> who had the authority to move customer funds from segregated accounts? >> without looking at records, it's very hard to try to reconstruct. >> did you authorize the transfer of funds from the segregated accounts to... >> i blame all parties. everybody in power. whether it's a politician, the regulators, jon corzine. >> there were people who handle the transfer of funds... >> mf global is just a microcosm, the tip of the iceberg, the cockroach theory, if you will. there's never one cockroach. and, um, it represents the start of systematic failure. the system has failed us, and it'll only continue to grow. >> this is about jon corzine's legacy. his firm, a lot of people

invested because of him. >> narrator: the mf global affair is unresolved. a half-dozen investigations are underway. but so far no one has been charged. the company has gone bankrupt. meanwhile, in december 2011, the cftc finally banned internal repos. >> the minute i saw the mf circumstance happen, i said, "we gotta pass that rule. you know, enough is enough." you know, monday morning quarterbacking would have had us do it months before. but, uh, that's monday morning quarterbacking. >> next timfrontline... the cia stopped an al qaeda plot in yemen to blow up a plane bound for the u.s. has the arabian peninsula become a stronghold for the terrorist group? >> for the first time, we see al qaeda actually trying to hold territory. >> in an exclusive report, frontline examines the new al qaeda threat.

>> this is al qaeda, and they control the whole city. >> "al qaeda in yemen." >> frontline continues online. explore the reporting on "cell tower deaths" from our partners at propublica, more about who's responsible for a worker's safety from osha's jordan barab, and read at&t's statement to frontline. get insights into working at mf global from a former broker. >> sipping the kool-aid at that time. >> learn more about the volckr rule, and follow frontline on facebook and twitter, or tell us what you think at pbs.org/frontline. >> frontline is made possible by contributions to your pbs station from viewers like you. thank you. and by the corporation for public broadcasting. major funding is provided by the john d. and catherine t.

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